Growing Government IT with Venture Capitalism

For those of us with a green thumb, we know that a plant needs water, good fertilizer, and a little love to nurture growth. In the government IT arena, the Govtech Fund is nurturing that growth.

When looking at the private industry, the number of companies with venture capital entities backing new products is extensive. Even some universities have strategic corporate venture branches, like the UT Horizon Fund of the University of Texas. But due to budget cuts, there is limited money allocated toward innovative government IT projects. The Govtech Fund is challenging this reality.

For some background, the Govtech Fund is the very first venture capital fund dedicated to government technological innovation. The San Francisco-based venture technology fund was created to enable governments to be more responsive to citizens’ need, conduct more efficient work, and ultimately better serve communities. It is dedicated specifically to government technology startups.

“The mission of the Govtech Fund is to enable government to become more efficient, more responsive and better able to serve society,” Bouganim explained. “Government plays such an important role in all of our lives. Between the local, state and federal levels government is the single largest entity in America, employing more than 22 million people, which is roughly, 15, 20% of the total workforce. Think of it as like 70 Walmart’s. That is a massive entity, and it needs modern technology.”

A Window of Opportunity

As a Canadian native, Bouganim first moved to the United States in 1998, ultimately earning his citizenship in 2009. “I actually found the, the process of becoming a citizen to be quite inspiring,” said Bouganim. “And so I wanted to get involved. And I had been involved in a little bit of politics in Canada, but I just wasn’t interested in getting involved in a campaign here.”

With a background in technology, Bouganim wanted to merge this field with government, and he was given the opportunity in 2009 and 2010. First, Bouganim connected with Tim O’Reilly, founder of O’Reilly Media. “Time O’Reilly is an advisor to the fund and instrumental actually in helping me put the fund together,” said Bouganim. “He started talking a lot in 2009 about web 2.0 trends morphing and evolving into government, and starting to ask questions about government as a platform, Gov 2.0, and actually created some conferences and, and discussions. And so I started going to those. So that was part of the sort of intellectual engagement that I was having at the time.”

“Right around that same time, the founder of Code for America, Jennifer Pahlka, through mutual friends reached out to me and asked if I would come in, and I did, and I started volunteering there” Bouganim continued. “ And that really is what began the path. Because my volunteering work at Code for America just kept evolving. Initially, I started working with some of the fellowship teams that they have, which is Code for America’s core program where they drop engineers into cities, to build applications.”

Leading the Way

Bouganim saw an opportunity to bridge the IT and government worlds. And there is the demand. According to him, the U.S. government spends close to $150 billion a year on information technology at the local state and federal levels.

Historically, startups have not played a large role in the government market, and what are known as legacy venders, very large multinationals, or government contractors. Bouganim explained that this stifled innovation in the past.

“What’s changed in the last 5 years is really a coalescing of a number of factors. The first one is massive budget constraints, though, since the financial crisis a few years ago, budgets have just been decimated,” said Bouganim. “That’s important because if you’re a startup and you’re selling at a price point that is literally a hundred X cheaper than the legacy vender, and your customer, the government agency, has cut their budget significantly, that matters. So they now take the meeting. They want to hear what you have to say. The second thing is the cloud. That we’ve seen the cloud in corporate America play an important role in enterprise, in the enterprise. And it just took a little while longer to get to government.”

Bouganim explained that the cloud enables these startup companies to have price points that are much lower than the procurement threshold. In the last three or four years, he’s seen over a thousand startups that could be backed by the Govtech Fund. “It’s also one of the reasons I started the fund, because I just saw the velocity of startups,” he stated.

“You’re starting to see other venture capitalists by, by the way, follow our lead,” said Bouganim. “Andreessen Horowitz just made a $15 million investment in a company called Open Gov back in May, Social Capital and Alis Venture just made a $10 million investment in a company called Captricity, back, also in May/June timeframe. Captricity specifically was a member of the Govtech Accelerator that I run.”

Measuring Success

Bouganim measures success first in terms of returns to the Govtech Fund’s limited partners and investors. Second, success is measured in regards to the Govtech Fund’s mission. “You can see one of the successes is clearly improvement of the government infrastructure, citizen engagement, those kinds of metrics.

One example of the Govtech Fund’s triumph is its investment to SmartProcure, a government procurement intelligence platform. Bouganim highlighted that there are already tens of millions of dollars in savings because of transparency. At the end of last year, New York City announced that it was moving its Checkbook New York Program over to SmartProcure, estimating that the city will save a significant percent of their budget because of transparency.

“At the end of the day, we want a government that works, but government’s critical. It’s those connective tissues for us as society,” said Bouganim. “And, you know, everything from regulating zoning, delivering the healthcare, collecting taxes, issuing licenses and permits, you know, convening citizens – these are important things and activities for government to engage in as a society. We just want it to work well is the point.”